Microsoft on Thursday reported a 25 percent plunge in quarterly profits as the company navigated away from its role as a software seller to a services model.

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Shares in Microsoft, once the world`s largest company, were down 4.3 percent in after-hours trade following the results, which were weaker than expectations.

The US tech giant posted a net profit of $3.8 billion as revenues dipped six percent to $20.5 billion in the fiscal third quarter to March 31.

Chief executive Satya Nadella said Microsoft was pursuing its shift to business and cloud computing services.

"Organizations using digital technology to transform and drive new growth increasingly choose Microsoft as a partner," Nadella said in a statement.

"As these organizations turn to us, we`re seeing momentum across Microsoft`s cloud services and with Windows 10."

The results showed a two percent drop in revenue from Windows, the PC operating system which has been the core for Microsoft for years, despite a larger drop in PC sales.

Microsoft said it managed to limit the decline because of a "higher consumer premium device mix."

The results showed further declines in Microsoft`s smartphone business, which has failed to gain traction against the market-leaders using Google Android and Apple`s iOS operating system. Phone revenues were down a hefty 46 percent from a year ago.

But Microsoft reported gains for its Office software and in business cloud computing, including a 120 percent revenue surge for its Azure cloud platform for enterprises.

The company also reported a 61 percent gain in revenue for Surface, the company`s branded tablet system, fueled by the introduction of Surface Pro 4 and Surface Book.

Microsoft has suffered amid a shift away from PCs to mobile devices.

Its longtime chipmaking partner Intel this week announced a massive shakeup that will eliminate 11 percent of its global workforce to adapt to the new technology landscape.